A higher ethanol blend should theoretically lower the price of petrol. It has instead, potentially increased the average cost of vehicle ownership. Here’s how.
Having achieved its 20% ethanol blending targets five years prior to its deadline, it’s safe to say that biofuel is to play a key role in the central government’s plan to reduce crude oil dependence. It’s a win-win for both the government and the agricultural sector, which can now utilise excess sugar for ethanol production.
With the exception of Delhi, petrol prices range between ₹100 – ₹104.2 per litre. Earlier this year, the per-litre price of ethanol increased by ₹1.69, bringing the total ex-mill cost of ethanol produced for the purposes of blending with petrol to ₹57.97. Given that ethanol is a little over half the price of petrol, the 20% blend, which was achieved earlier this year, should theoretically be accompanied by a marginal drop in petrol prices. In 2021, a 20% blend was projected to reduce petrol prices by ₹8/litre, according to a report by CNBC TV18. That hasn’t turned out to be the case.
In India, retail fuel prices are determined by international crude oil prices and the existing tax structure imposed by states via excise and VAT. While there has been no major fluctuation in VAT in the last couple of years, excise duty did go up in April, although the cost was not passed on to the customers, according to a report by Reuters. However, the benefit of the lower cost of production of ethanol has also not been passed down to the customers. In fact, it has indirectly added to the running cost of a petrol vehicle as ethanol burns much faster than petrol and isn’t as energy efficient.
Translation: lower mileage. You have to buy a lot more blended petrol in order to go the same distance as you would without unblended petrol. The prices also depend on just how the ethanol is produced. According to a report by the Centre of Social and Economic Progress, ethanol derived from B-Heavy Mollases, Sugarcane juice, sugar, sugar syrup, and damaged food grains brings the ex-mill price range up to ₹60 – ₹65.6. Add transportation charges and a 5% flat GST charge per litre, and the weighted average comes down to ₹65.35/litre of ethanol. Theoretically, then, the average price of petrol should be around ₹95/litre, which is only available in Delhi at the moment.
The report goes on to claim there is enough evidence to suggest that the Ethanol Blend Petrol Programme has played a key role in reducing crude oil imports, saving foreign exchange and generating domestic revenue. However, no cost benefit has been passed down to the customer. With the government working to meet an E27 target ( a 27-30% ethanol blend by 2030) there’s no evidence to suggest that the consumer will benefit at all. In fact, as it stands, the move is costing the petrol car consumer due to lower mileage and wear and tear caused by the corrosive nature of ethanol.